Appendix III to Part Ten — Rationale of Declaratory Relief and of Judicial Enforcement in Matters of Arbitration

With respect to arbitration awards rendered by Member Boards, it is important that the Board utilize the powers of local courts to support and enforce its arbitration awards and any Board actions contemplated in connection with arbitration by the Board. Both the Petition for Declaratory Relief and Petition for Judicial Enforcement should be employed by the Board where it will confirm the propriety of the Board’s actions and will minimize legal vulnerability and liability to the Board and its members. These legal procedures, or similar legal devices available in a given state, should be employed in the following circumstances:

(1) Refusal to Arbitrate: If a membership obligation to arbitrate disputes is permitted by applicable law, it is required of members in accordance with the Board’s professional standards procedures. Refusal of a member to arbitrate shall be determined by a hearing by the Board of Directors as specified in Part Ten, Section 49, Initial Action of Directors.

Upon determination of the sole question of fact that a Board Member has refused to arbitrate a properly arbitrable matter, the Board of Directors may direct the implementation of appropriate sanction, and should, if it has reason to believe that the imposition of sanction will become the basis of litigation and a claim for damages consequent to such sanction, delay the effective date of implementing the sanction to a date following receipt by the Board of a judicial decision in a petition for declaratory relief filed by the Board to confirm the propriety of its action.

(2) Refusal to Abide by an Award in Arbitration: However, in respect to a member agreeing and submitting to arbitration but then refusing to abide by the award, the Board should not, in the first instance of such refusal by a member, initiate a disciplinary proceeding except where an Association has adopted procedures requiring non-prevailing parties to pay awards or deposit an equivalent amount with the Association within a specified time (see Section 53[c]-[f]). Rather, the Board should encourage the award recipient to seek enforcement of the award in the courts, and suggest that a request be made for payment of legal costs incurred in seeking judicial enforcement. (Amended 11/11)

In such a first instance, the Board shall not initiate any disciplinary proceeding. If an individual repeatedly refuses to abide by awards in arbitration for reasons which, in the reasonable judgment of the Board, reflect a willful purpose to frustrate the intent of Article 17 rather than a purpose to ensure due process, the Board may initiate disciplinary proceedings for violation of Article 17. Such proceedings will be in addition to and not in lieu of Board support of judicial enforcement of the award by the award recipient. Again, as with declaratory judgment proceedings, some reluctance may be expressed by Member Boards and their members with respect to judicial enforcement of the award. However, the reasons for a policy under which the primary responsibility for the enforcement of the award rests with the beneficiary of that award (with the support, financial or otherwise, of the Board) are as follows:

• First, although arising out of voluntary membership, the mandatory membership obligation imposed by the Code inherently involves some limit on a REALTOR®'s right to redress in the courts. Therefore, the policy is justified only in instances where state law recognizes the right to enter into binding arbitration agreements and only on terms consistent with state law.

• Second, in instances where binding arbitration is authorized by law, the law provides that the person against whom the arbitration award is made is entitled to certain limited defenses against efforts to enforce the award. These defenses include lack of procedural due process, refusal to allow counsel to be present at the hearing, etc. Although courts are generally reluctant to set aside awards in arbitration, they will do so in instances where the arbitration procedure is found to be defective.

• Third, efforts by the Board to use suspension or termination of membership to induce a participant in an arbitration procedure to abide by that award can be and frequently are viewed as effective foreclosure of the defenses available under the arbitration laws; that is, the member against whom the arbitration award is entered is faced with the choice of either acquiescing to an arbitration procedure which he/she deems procedurally or legally defective or suffering serious injury through the deprivation of valuable membership services.

Board action to suspend or terminate a member for failure to abide by an arbitration award creates an unnecessary risk of serious legal liability.

Thus, if a member is suspended and ultimately the member’s claim of defective arbitration is upheld by the court, then the suspension was unwarranted, the denial of Board services unjustified, and the damage suffered thereby is the responsibility of the Board. On the other hand, if arbitration was valid, then a simple proceeding in court by the recipient of the arbitration award will produce a judicially enforceable award with no risk to the Board. If a Board is concerned about vindicating its arbitration procedures at a minimal cost, it may consider reimbursing the recipient of the award for any cost incurred in seeking the judicial enforcement, when such costs are not reimbursed by the court.